Mexico’s peso dropped for a second day as investors globally pared demand for higher-yielding assets amid concern over possible military action in Syria and the prospect of reduced U.S. monetary stimulus.
The currency fell 0.4 percent to 13.2346 per U.S. dollar at 4 p.m. in Mexico City, after tumbling 1.7 percent yesterday. Yields on Mexico’s benchmark peso bonds due in 2024 rose three basis points, or 0.03 percentage point, to 6.29 percent today, according to data compiled by Bloomberg.
Most major emerging-market currencies fell after Secretary of State John Kerry said the U.S. will hold Syria’s government accountable for using chemical weapons, fanning concern unrest may disrupt Middle East oil supplies. Yesterday, the peso plunged after Federal Reserve policy makers indicated they won’t take into account the fallout in emerging markets as they pare back U.S. monetary stimulus.
“Investors are still very nervous and skittish, and liquidity is light,” Clyde Wardle, a strategist at HSBC Holdings Plc, said in a telephone interview from New York. “It seems to be a number of items instead of one dominating theme.”
Wardle said that teacher demonstrations in Mexico, which have limited access to major roads in the capital over the past week, sparked concern that there may be protests against proposals to open up the country’s energy industry to more private investment. Lawmakers are poised to start debating the energy bills next month. The teachers are protesting a law that would require them to undergo standardized evaluations.
Yields on Mexico’s benchmark bonds touched a record low on May 9 in part on expectations that President Enrique Pena Nieto will succeed in passing legal reforms to boost growth. Since then, the yields have surged 1.81 percentage points on speculation the Fed will trim its $85 billion in monthly bond purchases as U.S. job growth improves.
The Finance Ministry sold 9 billion pesos ($680 million) in fixed-rate bonds maturing in 2016, according to the central bank. In its weekly auction, Mexico also auctioned 6 billion pesos in 28-day bills, 8 billion pesos in 91-day notes and 10 billion pesos in those maturing in 175 days.
Finance Minister Luis Videgaray told reporters yesterday that Mexico will maintain its exchange-rate policy as long as “adequate liquidity conditions” remain. He also attributed the peso’s fluctuations to global market conditions and said that “we’re convinced that a free-floating regime is what best serves the Mexican economy.”